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Oil Under Our Noses

March 21, 2012

Stephen R. Kelly

According to the current storyline regarding this fall’s presidential election, Barack Obama has jumped out of the frying pan of a weak economy into the fire of skyrocketing gas prices, a spike driven largely by tensions in the Persian Gulf.

Like President Carter before him, Mr. Obama supposedly risks losing an election over something he can’t control.

Fortunately for the president — and millions of American drivers — he may have more energy options than most of his recent predecessors.

Thanks in part to surging oil imports from our continental neighbors, Persian Gulf oil now constitutes a significantly smaller share of American oil imports than it did just 20 years ago. At the same time, domestic oil production is actually increasing after decades of decline, meaning we have to import less than before.

Taken together, these trends suggest that the oil weapon, at least in the hands of Persian Gulf producers, may no longer have the same edge for the United States.

According to the Energy Information Administration, in 2010 some 49 percent of American crude oil and petroleum product imports came from the Western Hemisphere — about 25 percent of that from Canada alone, making it our single largest supplier. (Other substantial hemispheric oil suppliers include Mexico, Venezuela, Colombia, Ecuador and Brazil.) In contrast, the Persian Gulf states provided only 18 percent of our oil imports in 2010, down from 27 percent as recently as 1993.

More surprising, though, is that we’re importing a smaller share of our oil needs. In 2005, America imported 60 percent of the oil we consumed. By 2011, that number had shrunk to less than half of our total oil consumption, due mainly to new domestic production from unconventional sources in North Dakota and enhanced recovery from older wells in Texas.

Of course, this doesn’t mean we are completely free of the Persian Gulf oil yoke. Should Iran halt its oil exports in reaction to Western moves against its nuclear program, or even close the critical Strait of Hormuz, oil prices would certainly soar, in the United States as well as abroad.

But the new oil paradigm suggests that the pain will be distributed in unexpected ways.

Take gasoline prices. They have risen sharply at home in recent months, but not uniformly. The Energy Information Administration reported that as of Feb. 27, gasoline in the Rocky Mountain states was selling for 53 cents a gallon less than the national average. This was a record spread, and largely a result of a glut of landlocked Canadian and domestic crude.

Or take the physical security of oil supplies. The United States may rely less on Persian Gulf crude, but it constitutes 77 percent of Japan’s imports, 74 percent of South Korea’s and 43 percent of China’s imports. For these countries, the physical availability of oil, not just its price, would be a critical issue in a confrontation with Iran. In contrast, we would pay more for oil, but the oil wealth of our neighbors and our growing domestic supply means we’d still be able to get it.

This geopolitical paradigm shift means that America needs to realign its energy policy in several key places. For one thing, we should review the estimated $50 billion a year we now spend to maintain a military presence in the Persian Gulf, not counting the costs of the wars we’ve been fighting in the region.

True, protecting oil supplies from the Persian Gulf, which holds the world’s largest reserves of conventional oil, is going to remain important. But as we reassess what we can afford to do militarily in the world, countries that depend more directly on Persian Gulf oil should pay a larger share of the burden for keeping the region stable.

In our own backyard, the Senate should quickly ratify an agreement with Mexico, which the administration initialed last month, that establishes joint rules for exploring trans-boundary oil fields in the Gulf of Mexico. Given historical and deep-seated Mexican suspicions about American involvement in its energy sector, this treaty is a surprising step forward for joint production of what are likely to be major oil and gas opportunities.

Moreover, the administration should expedite approval of the Keystone XL pipeline, intended to bring more Canadian oil to the United States. The company behind the pipeline recently announced that it would reapply for a permit following the administration’s denial of its first application. While Keystone’s merits have been debated at length, from a national security standpoint, the more crude flowing peacefully from our next-door neighbor, the safer we will be during the next international oil crisis.

The oil weapon may not be as sharp as it once was, but it still has an edge. If we want to avoid being held hostage over oil, we should shift our focus away from the Persian Gulf and work with our neighbors to develop even more reliable sources closer to home.